Celebrating the work of directors: The Wall Street Journal's Top 250 Board Directors report
We are thrilled that Diligent Market Intelligence (DMI), the leading provider of data and insights on corporate governance and shareholder engagement, was chosen to be the primary data supplier for the Wall Street Journal's new report, "Top 250 Board Directors."
Using a wide range of data points from seven data providers and a third-party data analysis company, the Wall Street Journal created the methodology and the report to accompany the launch of its Board of Directors Council, sponsored by Diligent and executive search firm Heidrick & Struggles.
The list provides boards, investors and advisors with the tools they need to make informed decisions about the companies they invest in or support. We are proud to have contributed to this important work and look forward to continuing to support the evaluation of corporate governance and board performance.
Check out the full Wall Street Journal report here and read on, as we highlight the value of selected data points included in the methodology and celebrate the commitment of boards to elevating governance and clarifying risk.
The importance of effective board directors
Effective board directors play a crucial role in the success of companies and the WSJ report aims to identify and celebrate directors who excel in these roles. They provide strategic guidance, ensure good governance and represent the interests of shareholders. Business is a team sport, and the work of the board even more so.
But companies nonetheless face pressure from their investors to squeeze a large variety of skillsets and experiences into a small cohort. As a result, board evaluations have grown in importance, while stewardship teams devote more and more time to analyzing data on board performance and director suitability. Since the introduction of the universal proxy card, proxy contests waged by activist investors have become more focused on the head-to-head qualifications of rival slates of directors.
Key data points and methodology
The methodology used to rank the top 250 board directors is multifaceted, incorporating a wide range of data points to ensure a comprehensive evaluation. Here are some of the key data points sourced from DMI and why they are significant:
1. CEO experience
Why it matters: Whether a director is or has been the CEO of a company is crucial for understanding their leadership experience and the value they bring to the board. This helps shareholders assess whether the board has the necessary leadership skills to guide the company effectively and has undertaken appropriate succession planning for contingency.
2. Board role and tenure
Why it matters: Understanding a director's board role and the year they became a board member provides insight into their expertise and the value they bring to the board. DMI is agnostic on what is considered an appropriate tenure but provides the tools for analysis and benchmarking against peers.
The Wall Street Journal has chosen five-to-11 years as a sweet spot for tenure. Directors with shorter tenure may still be learning, while those with longer tenure might lose their objectivity and independence.
3. Most recent vote percentage
Why it matters: Shareholders vote against directors for many reasons, including length of board service, participation, or perceived failures relating to their specific board roles, such as failure to respond to "say on pay" opposition or meeting high standards for board composition.
Boards that receive significant opposition votes are expected by proxy voting advisors to provide additional explanations and engagement with investors. A 2024 survey from a proxy advisor suggested almost 50% of investors viewed 20-40% opposition as significant enough to warrant a response.
4. Diversity
Why it matters: A variety of perspectives and experiences in the boardroom have long been considered essential. Board diversity is strongly linked to better financial performance, stronger stock returns, improved innovation, and more effective governance, making it a key indicator of high-quality, according to several studies. While recent regulatory changes have led to gender and diversity targets being removed from many investors' voting policies, investors have not precluded looking at this data to understand the varied experiences that make up the boardroom and the Wall Street Journal has deemed it to be a contributor to board quality.
5. Attendance at board meetings
Why it matters: Directors must have an attendance rate of at least 75% to be eligible for the ranking, a decision made by the Wall Street Journal. This ensures that they are actively engaged and committed to their responsibilities, which is crucial for effective board performance. Investors and proxy advisors often recommend or vote against directors with lower attendance unless a reason is provided.
6. Governance and vulnerability scores
Why it matters: The governance and vulnerability scores, provided by DMI, assess the quality of a company's corporate governance and the company's susceptibility to activist campaigns. These scores are indicators of a board’s performance and the company's overall health. The Wall Street Journal has applied these scores towards the “company score” element of the rankings, with scores for multiple companies where an individual holds directorships averaged.
From the outside looking in
The most important work of a director is often done out of the limelight, in discussions that remain private. These behind-the-scenes efforts can significantly impact a company’s strategic direction, risk management, and long-term sustainability. While, for the purposes of the report, being a "top" director depends on many factors outside of an individual's direct control, many great directors show up to support and challenge the management team and fulfill their fiduciary duties without external recognition.
However, transparency and accountability are crucial, especially for shareholders who own entire indices. Disclosures and matrixes – alongside engagement – are crucial for such universal owners to determine when boards are working effectively. High governance scores can instill confidence in the market, indicating that the board is proactive in addressing potential issues and signaling its effectiveness.
The data points and methodology used in the report are designed to help shareholders identify effective boards and engage with those where disclosures raise concerns to better understand the nuances of a company's governance and strategy.
We are proud to have contributed to this important work and look forward to continuing to support the evaluation of corporate governance and board performance during this proxy season and beyond.
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